Status of Liability of service tax for stock broker

[sunil mehta]

Dear Sir, Now w.e.f.10/9/04.defn. of stock broker includes subbroker.consequentely,subbrokerage recd.from main stock broker is taxable.But from f.y.2004-05 SEBI introduced 'direct billing system',wherby main broker raises bill to a customer.Previously Main broker raises bill on subbroker and subbroker raised on client.Now,payments are made by clients directly in favour of main broker.Main broker gives some part of his earnings to subbroker at the month end. Query:1)what is the status quo liability of subbroker under s.tax?(keeping in mind that there is direct billing system from main to subbroker as per sebi rules) 2)suppose the main broker has paid the ser.tax liability on portion of 'subbrokerage share' at his end,whether such portion of subbrokerage income will be included in calculating 4 lacs turnoverof subbroker? Can it be argued that with introduction of 'direct billing system' subbroker does not come under purview of taxable services,therefore such income should be kept out of t/o limit of 4 lacs ? Note:The above query stands on provisions existing prior to 1/4/06. s.mehta

AI Summary

Sub-brokers Liable for Service Tax on Commission; Independent of Main Broker's Turnover; Main Broker Can Claim Cenvat Credit A query was raised regarding the service tax liability of sub-brokers following the introduction of a direct billing system by SEBI, effective from 10/9/04. Under this system, clients pay the main broker directly, who then compensates the sub-broker. The questions addressed whether sub-brokers are liable for service tax and if their earnings contribute to the Rs. 4 lakh turnover threshold. The response clarified that sub-brokers are liable for service tax on their commission, which is independent of the main broker's turnover, and the main broker can claim Cenvat Credit for the tax paid by the sub-broker.